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Half-Point Rate Hikes in May and June? That's What's Priced In!

In addition to May and June traders have penciled in a rate hike for July and many more by December.
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CME Fedwatch rate hike probabilities based on traders' positioning.

CME Fedwatch rate hike probabilities based on traders' positioning.

June Probabilities 

CME Fedwatch rate hike probabilities based on traders' positioning.

CME Fedwatch rate hike probabilities based on traders' positioning.

July Probabilities 

CME Fedwatch rate hike probabilities based on traders' positioning.

CME Fedwatch rate hike probabilities based on traders' positioning.

That 1.25 percentage points of rate hikes priced in for the next three months alone. 

December Probabilities 

CME Fedwatch rate hike probabilities based on traders' positioning.

CME Fedwatch rate hike probabilities based on traders' positioning.

Color me skeptical, but that has been the call of Jim Bianco for a while.  

Market Not Setting Rates

If the Fed wants something else, it will walk back expectations.

Recall that 50% was a 90% chance for March. Until a parade of Fed presidents walked it back.

There is no market here. The Fed views communication as its primary tool. The market front runs communication.

Fed Uncertainty Principle and a Big Swift Kick in the Pants

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On February 11, Bullard gave the market a kick, then in retrospect Powell didn't like it.

For discussion, please The Fed Uncertainty Principle and a Big Swift Kick in the Pants

Now the Fed has indicated it wants to get to "neutral" by December or next March. 

For now, the market agrees. 

To bring down inflation, Chicago Fed President Charles Evans said the Fed might have to hike above neutral. Where is that?

For a discussion of "neutral" please see The Fed Searches For the Neutral Interest Rate, Where the Heck Is It?

Stock market carnage will be massive if the Fed gets to 2.75% to 3.25% by December. We would undoubtedly be in a huge recession if that happens. 

I suspect a long pause after June, with recession anyway.

Regardless, Expect More Stock Market Pain Because It's Coming

This post originated at MishTalk.Com.

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